Monday, March 14, 2011

Energy: "Time to start watching the uranium-fossil spread" (CCJ; URA)

I'm using Cameco as a proxy for the uranium group, URA is the ETF. Kids, this is global macro.
A smart piece at Alphaville:

If energy markets were ever confused, it’s now.

On the one hand the Japanese earthquake immediately implies bearishness for crude oil on account of lower demand. On the other hand it implies a hike in demand for refined products.
From another perspective completely, it also implies a huge surplus of petrochemicals which will have to make their way into the global product markets overall.
On top of all that you still have the effect of ongoing tensions in the Middle East.

So let’s look at what we do know.

Above all, the initial and most publicised impact has been on Japan’s nuclear generation capability on account of the ongoing troubles at Tokyo Electric Power company’s (Tepco) Fukashima plant.

Bad PR for the nuclear industry aside, the first and most immediate question is how does Japan compensate for the loss of energy?

Analysts estimate up to 20 per cent of the country’s power capacity has been shut off, after all.
In the first instance, most say it will be via liquefied natural gas — Japan being one of the world’s top consumers of the transportable fuel type already — and fuel oil.
Tepco, for one, does have the capability to switch over.

Olivier Jakob at Petromatrix explains how they’ve done it once before already:

In July 2007, TEPCO had to shut its Kashiwazaki nuclear plant following an earthquake and that resulted in an increase of fuel purchases. The Kashiwazaki plant is bigger (8212 MW) than the Daiichi plant (4696 MW) but given the shutdown of other nuclear plants and the massive power shortages suffered in the grid we think it is fair to assume that TEPCO moves back to thermal operations at least as large as in 2007/2008 and that would be for TEPCO alone an increase of at least 100 mbpd for fuel and 50 mbpd for the direct burning of crude oil.

The good news, then, is that they do have thermal capability if needed....MUCH MORE including this bit:

...A uranium-crude spread
Lastly, we should also point out, it’s worth watching the impact of the Japanese nuclear crisis on uranium ore prices. Not only would a drop in prices have a potential deep impact on uranium miners, it may finally get the world looking more closely at the uranium-crude oil spread. Or better still the uranium-natgas spread since the implications are there for all fossil fuels....